Posted on: 18 January 2018
Farming is one of the few jobs where a majority of the work, from welding damaged equipment to marketing your own products at the farmer's market, is handled by the farmer or their family members. Yet turning to outside help can have a major positive influence as your farm as a business, especially when it comes to dealing with the complexities of federal and state taxes. You need to get every deduction you qualify for to make your efforts profitable, and a tax professional is best suited to help.
Avoiding Costly Mistakes
Taking too few deductions or forgetting to claim important losses will definitely cost you more money in the long run due to higher taxes, but it's the costs of being audited and told to pay more that most farmers are worried about. One too many deductions that don't meet the current tax code requirements can send you into a complex processing of digging out years of paperwork and receipts. Bringing in a tax professional to keep everything organized and verify the legitimacy of each and every deduction gives you a lot of peace of mind year round.
Passing the Profit Test
Many smaller and new farms struggle with defining themselves as a business for tax purposes. The IRS has a requirement of producing a profit in at least three of the last five years in order for you to consider your farm a business rather than a hobby. However, failing to meet this requirement doesn't automatically exclude you from filing as a business. There are other complex requirements the IRS can use to weigh your status as a business or hobby operation, such as your number of weekly and monthly hours spent on the business, the activities you partake in like attending farmer's markets, and your total number of annual sales.
Sharing Personal and Business Use
Farms are unique businesses because most of their owners and operators, and even many employees, live on the same property as the business. This leads to a lot of shared use of equipment for both personal and professional purposes. If you haul feed and manure in your work truck but also use it for trips to the grocery store and movie theater, you can only claim a percentage of its fuel and maintenance costs as deductions. An experienced tax professional can help you clearly divide up your usage of your home, buildings, vehicles, equipment, and even your utility bills and Internet fees to help you save as much as possible within the boundaries of the tax code.
Contact a professional from a firm like Balkcom Pearsall & Parrish CPA's PA if you have tax questions.Share